Sort out the letters in IBC's spirit to optimize corporate insolvency resolution

The idea behind IBC is to resolve corporate insolvency quickly so that capital can be freed for productive use. Legacy methods were found wanting, and the code has been modified swiftly to overcome gaps. Special dispensation has been provided, or is in the works, for financial service providers, small enterprises and real estate companies. Yet, bankruptcy resolution is taking longer and yielding less to creditors.

It would be unfair to compare IBC with older debt recovery mechanisms. The purpose envisioned is to keep corporate debtors in business even after a default. But the number of cases admitted for insolvency resolution that end up in liquidation is distressingly high. This pulls down the recovery value to levels of legacy debt recovery mechanisms. The erosion in recovery is also driven by a declining ratio of large cases that elicit more interest from potential buyers. And the IBC pipeline is clogging up.

Pre-packaged insolvency resolution for small enterprises and a creditor-led process allowing for agreement before approaching NCLT should help ease the caseload. Improved information-sharing in the preparatory stage and greater interaction among stakeholders can cut timelines.


Admission of cases is another hurdle. Procedures need to be streamlined once default is established. Coordinating resolution of multiple cases by a defaulting entity, enabling provisions for resolution plans and pooling assets of guarantors are some other fixes being considered.

IBC has been a fairly dynamic piece of legislation with GoI drawing on international experience to bring it up to speed. Yet, it is subject to a systemic delay in interpretation and execution. These areas need to be addressed. Turnaround time for capital has to improve.